By Tobias Salinger / March 16, 2022 / Financial Planning
Three months after receiving its first infusion of outside capital, Private Advisor Group acquired a multibillion-dollar RIA with 28 financial advisors.
Morristown, New Jersey-based Private Advisor has reached its size of 700 advisors with more than $30 billion in assets under management largely through recruiting and organic growth as a hybrid RIA enterprise that uses LPL Financial as its main brokerage. Financial services operating firm Merchant Investment Management purchased a minority stake in Private Advisor in December. While the firm doesn’t plan to become an RIA consolidator as its primary business, its March 16 deal is its largest in its 12-year history in terms of AUM. The incoming RIA, Minneapolis-area Investors Financial Group, services $1.86 billion in AUM.
In addition to the new area of business for Private Advisor, the deal reflects how more wealth managers are tapping into M&A amid the record-breaking volume of transactions and rising level of recruiting competition for advisors. For example, after 16 deals last year and more in 2022 pushing it above $50 billion in client assets, private equity-backed Wealth Enhancement Group surpassed Private Advisor as the largest hybrid RIA enterprise out of about 450 using LPL as their main brokerage. In the case of Private Advisor’s deal, it had been negotiating with the other RIA prior to the Merchant investment, said Head of Advisor Growth Frank Smith.
Under its expanded capital resources, Private Advisor has become “a strategic acquirer” rather than a “serial” one, Smith said. Investors Financial “checked all those boxes” on its key factors in seeking deals: a cultural fit, additive elements for both sides and geographic reach, he said.
“It’s a great model in that they’re not giving up operational control or independence,” Smith said. “That doesn’t change. What does change is the time back and some of the burdens that come with a smaller RIA and how they operate.”
Besides the expanding number of acquirers, deal volume and size, independent wealth managers are also facing a tougher recruiting fight with wirehouses and other employee brokerages seeking to retain their largest teams, according to John Pierce, head of business development with Cetera Financial Group.
The PE-backed competitor to LPL and Private Advisor bulked up its recruiting team in 2021 with more than a dozen new executives and team members while adding $11 billion in client assets and $650,000 in average annual production among the incoming advisors, Pierce said. Cetera itself acquired certain assets related to the independent planning channel of Voya Financial Advisors last year. Returns to offices with the easing of the coronavirus and fewer mistakes by the employee brokerages are changing the lure of independence to advisors, Pierce said.
“They’re not being pushed out or having the perception of being pushed out like they have in the past,” he said. “They want to go independent, but they need to tuck in somewhere because they need their hands held. … You can easily come in and get a dramatically higher payout but have the support that you’re used to.”
Plymouth, Minnesota-based Investors Financial principals Timothy Gaarder, Ron Bickford and Richard Anderson are retaining their own brokerage affiliations with LPL, which acted as a consultant on the deal. The parties didn’t disclose the terms.
Under the deal, Investors Financial and its 30 independent advisors and employees will shift their RIA management and affiliation to Private Advisor by the end of the week. Gaardner and Bickford launched the Minneapolis-area firm in 1992 and registered its hybrid RIA in 2010. LPL’s M&A consulting team helped it identify and interview 18 firms as part of its due diligence prior to the deal, Gaardner said. Rising expenses and competitive threats from technology and compliance needs prompted the three principals to make a deal, he said.
“We’re getting older. We’re looking at transitioning to not so much managing Investors Financial Group and working in our own practices, so we can just concentrate on working with our clients and leave the management to our new partners,” Gaardner said. “Looking forward, there was no way for us to compete. We wanted to make sure that Investors Financial Group was still around decades from now.”
The firm’s new parent company has established significant scale over its dozen years as an RIA. Private Advisor Group founders John Hyland and Pat Sullivan registered the hybrid RIA in 2011, when it had about $615 million in AUM. Hyland and Sullivan’s team appointed Robert “RJ” Moore, the former CEO of Cetera, the CEO of Private Advisor in November 2020. At the time of the Merchant deal, Moore made it clear that the firm wasn’t significantly altering its approach.
“There are multiple avenues that comprise growth. Our primary focus is on organic growth,” Moore said. “The primary thrust here is to provide growth capital.”